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Karnit Flug, head of research at the Bank of Israel, doesn't use the phrase "financial crisis."

"We at the bank never do that," she says. But she sees worrying signs on the horizon. "In recent weeks there have been signs that the slowdown process is starting," Flug says.

Earlier, Bank of Israel officials had thought the economy would start slowing at the year's start, but in fact first-quarter growth was higher than expected, at 5.3% in annualized terms.

That won't be sustained: Growth will slow significantly as the year wears on, she warns. In June the central bank updated the bank's forecasts for 2008, from 3.2% growth in 2008 to 4.2%. But for 2009 it cut its forecast from 3.4% to 3.1%. Given the brisk pace of growth in the first quarter of 2008, Flug points out, the figures mean the central bank is expecting significantly slower growth in the near future.

She also adds that Israel remains more heavily affected by the giant economies of the U.S. and Europe than by the emerging markets, though the impact of the latter on Israel is growing.

Locally, the slowdown will be attributable to two factors, says Flug: the end of a local growth cycle that began in mid-2004, and the international financial crisis.

The Bank of Israel expects the year 2009 to start with slow growth that will gain momentum as the year progresses. The U.S. is expecting 0.8% growth from the year's start, accelerating to 1.9% by the end of the year. Israel is expecting much the same.

Flug does predict that slowing growth may hurt jobs. However, she says, if the government cuts down even more on the presence of foreign workers in Israel, blue-collar Israelis can be spared some of the pain.